📈 Sri Lanka’s Fiscal Challenge: Broadening the Tax Base for Sustainable Growth

Sri Lanka’s main fiscal problem is not excessive taxation, but an overly narrow tax base, according to Dr. Roshan Perera, Consultant at the Centre for Poverty Analysis. To sustain economic growth, the tax-to-GDP ratio must be maintained or increased by expanding the net rather than raising rates. • Tax Reform & Growth Strategy: • Focus on widening the tax base by incorporating employed professionals, property, and under-taxed areas. • Gradually phase out tax holidays to build household resilience through job creation. • Maintain the growth-maximising tax threshold required for long-term momentum. • Public Expenditure Breakdown: • Recurrent Spending: Accounts for 84% of total expenditure (Interest: ~46% of revenue, Salaries: ~21%, Subsidies/Pensions: ~23%). • Capital Spending: Represents only 16% of expenditure, with only ~30% of the capital budget spent in the first 9 months of the year. • Economic Impact: • Public investment yields a high return: Every Rs. 1.00 spent on capital investment increases GDP by nearly Rs. 1.50 on impact. • Recurrent spending shows zero to negative impact on GDP growth. • Urgent need to shift focus toward physical and human capital, alongside reforms in public investment management, project selection, and procurement.